Phase II of ERC Amnesty Program: What Businesses Need to Know

  • The IRS has unveiled a second phase of the Employee Retention Credit (ERC) amnesty program.
  • This program allows businesses that previously received ERC funds to return them without facing future penalties.
  • Eligibility criteria include no criminal investigations, no third-party alerts, and no prior notice for repayment.
  • The withdrawal process aims to help businesses with uncertain ERC eligibility positions.

In the ever-evolving world of taxation, the IRS recently made an announcement that could impact businesses that have previously applied for and received funds through the Employee Retention Credit (ERC) program. This new development, which is part of the ongoing efforts to streamline ERC-related processes, provides businesses with an opportunity to return previously received ERC funds without incurring future penalties related to their filings. In addition to offering this amnesty, businesses can retain 20% of the refunds and return the remaining 80% on an interest-free and penalty-free basis.

IRS Unannounced Visits EndingWho Qualifies for the ERC Second Phase Amnesty Program?

To be eligible for the ERC amnesty program’s second phase, businesses must meet several specific criteria, including the following:

  • The business is not under criminal investigation by the IRS.
  • The IRS has not been alerted by a third party about the business’s noncompliance.
  • There is no ongoing employment tax examination by the IRS for the relevant tax period(s).
  • The business has not previously received a notice and demand for repayment of the claimed ERC.

It’s essential to note that this program does not provide relief for businesses that willfully filed fraudulent claims or conspired to do so. Additionally, if a business utilized a Professional Employer Organization (PEO) during the refund request period, it should consult with the PEO regarding participation in the withdrawal program.

How to Request IRS Amnesty Consideration

The process for initiating the withdrawal is straightforward, with businesses needing to complete IRS Form 15434, titled “Application for Employee Retention Credit Voluntary Disclosure Program.” Here are some key requirements and details for filling out the application:

  • Provide essential taxpayer information, including name, taxpayer identification number, address, and contact details.
  • If a practitioner will represent the taxpayer, a completed Form 2848 (Power of Attorney and Declaration of Representative) is required.
  • Specify the tax period(s) for which the ERC was claimed, the form used for the claim, and the total ERC amount claimed, including both refundable and non-refundable portions.
  • Include a completed ERC Voluntary Disclosure Program Form SS-10 if any tax periods ending in 2020 are involved.
  • If a third-party payer claimed the ERC on behalf of the participant, attach relevant pages of the Schedule R (Form 941) that accompanied each Form 941.

The completion of Form 15434 will guide businesses through the calculation of the amount to be returned and the method of return, including potential payment plans. Additionally, businesses will be required to enter into a closing agreement with the IRS, asserting all facts and circumstances regarding the settlement.

Addressing ERC Challenges and Abuses

Throughout the ERC program’s existence, clarity and guidance on eligibility rules have been somewhat lacking, leading to potential misuse of the system. The IRS acknowledges the challenges it has faced with respect to these issues. To address these concerns and reduce the claim backlog, the IRS previously introduced a withdrawal program aimed at allowing businesses with uncertain ERC positions to return funds they may not have been eligible to receive without incurring penalties or interest.

This extension of the program to taxpayers who have already received ERC refunds marks another step in the IRS’s effort to address potentially ineligible claims and streamline the process.

Lotito & Lazzara CPAs: Your Trusted Partner in ERC Matters

Lotito & Lazzara CPAs has been at the forefront of helping clients navigate pandemic-era programs like the ERC. With a track record of preparing over 4,400 refund claims for employers, our approach has been conservative, ensuring that businesses meet eligibility requirements. We are well-equipped to assist businesses in any IRS claim: the withdrawal process, providing guidance on document preparation, submission instructions, and tracking the acceptance of withdrawals within the IRS.

If you require the expertise of a trusted CPA and accounting team to assist with ERC matters, including filing, withdrawing claims, or managing ERC audits, schedule a consultation with Lotito & Lazzara CPAs today. We’re here to support your needs and provide clarity in these complex tax-related processes.